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school. Then, they may move to a boutique firm. In search of a larger piece of profits, they may go off on their own. And then eventually, they will start a hedge fund. With a hedge fund, they manage their own money along with their investors'. Under this environment, they have the right incentive: to perform to get the best results rather than just gathering assets and generating management fees. It is a funnel-shaped movement and the best managers end up at the end of the funnel.

UNC is currently very interested in European managers. The endowment has allocated to Boyer Allan and has looked at many other managers. The plan is to hire a few more in the next few months.

Does Yusko see any difference between the U.S. and European managers? He sees Europe as having more opportunity since the environment is less competitive. "The European equity markets are like the U.S. markets were 10 years ago." Yusko also observes that the stigma against entrepreneurship and being a hedge fund manager are gone in Europe.

Yusko recalls how he happened to be at Marshall Wace's new offices in London when they were just starting to open for business in November 1997. That day, Yusko sat with Paul and Ian on boxes and talked about when they might get to $100 million under management. Today, Marshall Wace has over $2 billion in assets and is closed to new business.

Yusko believes that a manager who is going to make it, has to be adept at more than one thing and has to be multiskilled. For example, from 1983 through 1990, technology managers had a very difficult time making money on the long side. Yet from 1990 to mid-2000, technology had been a great place to be.

Black Eyes

Have the recent hedge fund scandals hurt UNC's appetite for hedge funds? Yusko feels the hedge fund industry has had a fast pace of growth. There have been tremendous opportunities and some setbacks.

He admits that the financial press, focusing on the negative stories, has made his allocation job more difficult in terms of making board members comfortable with strategies that are portrayed as risky. It means he has to constantly educate the board and manage risk in the overall portfolio. He wonders why the press doesn't high-